Also this hour, we're watching Craig's fight for survival in his home state of Idaho, as well as here in Washington. Fellow Republicans can't seem to get enough distance from Craig right now, his bathroom bust and "I'm not gay" statements to reporters.

We're watching this part of the story right now.

And President Bush vows he's still paying attention to the Gulf Coast exactly two years after Hurricane Katrina. Mr. Bush is facing New Orleans residents today and a mayor who accused him of playing politics with the recovery.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

This hour, Republicans are running away as fast as they can from Senator Larry Craig and the scandal surrounding him. And now there's more breaking news. The Senate minority leader saying Senator Craig has agreed to temporarily step down from his committee posts.

In addition to that, a Republican colleague and presidential candidate is ready to shove him out the door. That would be Senator John McCain. McCain today calling for Craig to resign after the revelation of his arrest in a men's room and his guilty plea to a charge of disorderly conduct.

Two other Republicans, Minnesota Senator Norm Coleman and Michigan Congressman Pete Hoekstra, they came out today saying Craig should resign as well.

Let's go to our chief national correspondent, John King. He sat down with Senator McCain.

Just a little while ago, John, and he minced absolutely no words when you asked him about Senator Craig.

JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT: No words at all minced, Wolf. Senator McCain had just mentioned the fact that he thought scandals were hurting the Republican Party, that voters didn't think the Republican Party could deliver honesty and integrity and good services in the government. So I put the question to him: should his colleague, Senator Larry Craig, stay in Idaho, should he resign? Should he let the governor send a replacement in his seat?

Senator McCain responded first with an emphatic yes, meaning he should resign. And I asked him to explain why.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: I believe that he -- that he pled guilty and he had the opportunity to plead innocent. So I think he should resign.

KING: And suppose he comes back to Washington and says, "I want to serve"?

MCCAIN: Well, that will be a decision that he will make and, most importantly, the people of the state of Idaho. But my opinion is, that when you plead guilty to a crime, then you shouldn't serve.

(END VIDEO CLIP)

KING: Strong words there from Senator McCain.

We sat down with the senator here in Los Angeles. It's his 71st birthday. His campaign, of course, has been struggling.

Once the Republican front-runner, now scrambling just to survive. Hurt among Republicans because of his stance on immigration, hurt among the electorate at large, Wolf, because of his position on the war in Iraq. The senator, a strong supporter of the war and the recent troop surge.

He knows when he gets back to Washington next week, one of the big debates is, should troops start coming home? So, I also asked him about his Republican colleague, Senator John Warner, saying the president should bring 5,000 troops home my Christmas as a down payment on withdrawing U.S. troops. I asked the senator if he thought that was a good idea.

Let's listen.

(BEGIN VIDEO CLIP)

MCCAIN: It's a bad idea. A terrible idea. And I'll fight it every step of the way.

John Warner and I are very close friends, but that sends the signal to al Qaeda and the bad people in the region that we're leaving. And that's not our position.

(END VIDEO CLIP) KING: As part of this effort to revive his campaign, the McCain campaign putting out a dramatic new campaign video. It runs about 12 minute long and it opens with previously unseen video of his interrogation, Lieutenant Commander John McCain being interrogated by the North Vietnamese 40 years ago when he was a prisoner of war, after being shot down over Hanoi.

That, in the video, as well as testimonials from some of those with whom he served as prisoners of war, again, part of an effort to revive a very struggling presidential campaign. Despite all the problems, Wolf, McCain said he was upbeat, says he feels great as he turns 71, and says he believes, despite all the skeptics and all the critics in the Republican Party that, given some time over the next several months, he can revive his campaign and go on to win the nomination and the White House.

There are, of course, many who doubt that very much -- Wolf.

BLITZER: John King, we're going to have much more of your interview coming up here in THE SITUATION ROOM.

Thanks very much.

Let's go to Idaho right now. Senator Craig clearly in a desperate, desperate fight for his political survival.

Our congressional correspondent, Dana Bash, is on the ground in Boise for us.

And Dana, you're learning new information. Not necessarily simply involving John McCain or Norm Coleman, but the Republican leadership in the U.S. Senate -- that would be Mitch McConnell and company -- they're taking a very dramatic step.

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: They are taking a very dramatic step. Five -- the five Republicans in the Republican leadership back in Washington just issued a statement saying that they -- that Senator Craig has agreed to step down from very important committee assignments that he has.

The committees that he is the top Republican on. And I'll read you the statement.

The statement says, "Senator Larry Craig has agreed to comply with leadership's request that he temporarily step down as the top Republican on the Veteran Affairs Committee, Appropriations Subcommittee on the Interior, and Energy and Natural Resources Subcommittee on Public Lands and Forests. This is not a decision we take lightly but we believe this is in the best interest of the Senate until this situation is resolved by the Ethics Committee."

So, the leadership is essentially trying to take the leadership positions, if you will, that Craig has still in the Senate away from him. A big signal that they are trying to send to Senator Craig during this very important time in his political future. Now, that is happening as things are a little bit less overt, if you will, here in the senator's home state of Idaho. The leadership here is being virtually mum about the future of Senator Craig, but when you listen to talk radio, when you talk to voters, it sounds a little bit different.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: An exciting Wednesday. Not so exciting for Larry Craig.

BASH (voice over): Tune in to Idaho conservative talk radio and it sounds like Larry Craig's days may be numbered.

UNIDENTIFIED MALE: I really don't think he'll survive this. I think that within the next week to 10 days he will step down.

UNIDENTIFIED MALE: If you read the police report, which is available online, it is clear that he had intent to do something questionable.

UNIDENTIFIED FEMALE: Senator Craig needs to quit being a chump and resign.

BASH: Idaho is a Republican state steeped in conservative values. But it also has an element of live and let live. On Tuesday, Craig vehemently denied rumors that he is gay.

SEN. LARRY CRAIG (R), IDAHO: I am not gay. I never have been gay.

BASH: Democrat Nicole LeFavour is the only openly gay member of the Idaho legislature.

NICOLE LEFAVOUR (D), IDAHO LEGISLATURE: As an openly gay elected official in the state of Idaho, I think a lot of people underestimate the voters.

BASH: She says it's disbelief about Craig's claim he pleaded guilty to disorderly conduct but now says he's innocent that hurts him most.

LEFAVOUR: Voters are going to look much more harshly on lying, really, frankly, than anything else. I think his honesty always will be the most important thing to them. It always is.

BASH: Privately, influential Idaho Republicans tell CNN they think Craig will be forced to step down. Publicly, they are taking a wait-and-see approach.

The Idaho GOP chairman saying, "I would encourage all Idahoans to avoid rushing to judgment and making brash statements about a man who's dedicated his life to public service."

(END VIDEOTAPE) BASH: Now, when you talk to people here in Idaho, especially Republicans, they say that the way they see this happening in the next several days, weeks, is that the senator's political future likely will not be decided in his home state, but probably on a national level. And when you see what has gone on really over the past couple of hours with a couple of senators, one congressman, and then this move calling for him to resign, and then this move by the leadership, that looks like that's exactly what could be happening -- Wolf.

BLITZER: All right, Dana. Thanks very much.

Dana is on the ground in Boise, Idaho, for us.

The Republican presidential candidate Mitt Romney was quick to call Senator Craig's situation, in his word, "disappointing". Craig quit as Romney's Idaho presidential campaign chairman after word of his arrest broke on Monday.

Several White House hopefuls have been embarrassed by political allies caught up in scandal. This in recent weeks.

Republican Rudy Giuliani's southern campaign chairman, Senator David Vitter of Louisiana, was linked to the so-called "D.C. Madam" when his phone number was revealed to be on her client list.

Bob Allen, the co-chairman of Republican John McCain's Florida campaign, stepped down after being arrested on charges of soliciting for prostitution.

Thomas Ravenel, another Giuliani ally and his South Carolina campaign treasurer, called it quits after being indicted on federal cocaine charges.

And Kristian Forland, one of Democrat Bill Richardson's top organizers in rural Nevada, resigned after the campaign learned he was wanted on a felony arrest warrant and had worked for a brothel.

The Bush administration may be getting ready to ask for another big chunk of money for the Iraq war effort.

Senior Pentagon Correspondent Jamie McIntyre is checking out the story for us.

Jamie, what are you -- what are you hearing?

JAMIE MCINTYRE, CNN SR. PENTAGON CORRESPONDENT: Well, Wolf, both the White House and the Pentagon are downplaying the idea that they're going to Congress soon and ask for $50 billion to pay for the surge. At the Pentagon briefing today, Geoff Morrell, the new Pentagon press secretary, said the first his boss, Bob Gates, the defense secretary, heard of this was when he read it in this morning's "Washington Post".

(BEGIN VIDEO CLIP)

GEOFF MORRELL, PENTAGON PRESS SECRETARY: He picked up the paper this morning and said, "That's news to me." And I think that's news to him because we simply aren't there yet. I'm told that next week we will begin to delve into this process.

(END VIDEO CLIP)

MCINTYRE: Now, the Pentagon says The Post report puts the cart before the horse, that first the president has to hear from all of the people who are going to advise him about what to do with the surge, and then they'll know how much money to ask for. But while that might be the case, Wolf, don't be surprised when all of that happens if they don't actually end up asking for nearly $50 billion. After all, all indications are right now that the surge is going to continue until April -- Wolf.

BLITZER: All right, Jamie. Thanks very much.

Let's check in with Jack Cafferty. He's in New York with "The Cafferty File" -- Jack.

That's a note of caution coming out of a great commentary piece by The Associated Press on the second anniversary of Hurricane Katrina. It goes on to say, "What happened to this historic city two years ago is more than the obvious cautionary tale of what might befall your community after a natural disaster or a terrorist strike. It's also a sad reflection of what's happening now, today, in your hometown and across an anxious and ailing nation."

The piece points out how so many of the issues plaguing New Orleans are also problems facing all of us, things like inadequate health care, a housing crisis, crumbling infrastructure, racial divisions, poor schools and rising crime. And, of course, at the core of all of these issues, a serious failure of leadership. The same government that abandoned the people of New Orleans on the Gulf Coast is the one that's not addressing so many of these other crises facing this nation right now.

There's a reason so many Americans lost confidence in the institutions that make up the fabric of our society like -- things the military, police, churches, the medical system, the media, and our three branches of the federal government. They don't want to be left behind like so many of the people in New Orleans were.

Here's the question, then. How does New Orleans represent many of this country's problems on this, the second anniversary of Katrina?

E-mail your thoughts on that to caffertyfile@CNN.com or go to CNN.com/caffertyfile -- Wolf.

BLITZER: See you in a few moments, Jack.

Thanks very much.

A Democratic presidential candidate is getting a surprising new show of support today. I'll ask Senator Chris Dodd how he pulled off this political coup over rivals who have better poll numbers and bigger war chests.

Also coming up, a blot on Senator Hillary Clinton's fund-raising machine. We have some details on her financial link to a fugitive and the possible fallout.

And the recovery isn't over. And the political wounds haven't healed yet, either. President Bush revisiting the Gulf Coast today, two years after Hurricane Katrina.

Lots of news happening right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Welcome back.

A major endorsement today for Democratic presidential candidate Chris Dodd from the International Association of Firefighters. They cited his proven leadership in choosing to back him over the other Democratic rivals with more support in the public opinion polls, more money in their campaign war chest.

You may remember Democratic Senator John Kerry got the firefighters union endorsement back in 2004, and it was then seen as an important boost for his presidential campaign.

Joining us now here in THE SITUATION ROOM is Senator and Democratic presidential candidate Chris Dodd of Connecticut.

Senator, thanks for coming in.

SEN. CHRIS DODD (D-CT), PRESIDENTIAL CANDIDATE: Thank you, Wolf.

BLITZER: I want to talk about the endorsement, want to talk about the war in Iraq, the additional funding that the president may be seeking, but let me get your quick reaction on your colleague, the Republican senator from Idaho, Larry Craig.

John McCain telling our John King just a little while ago he believes he should resign. Norm Coleman, your Republican colleague from Minnesota, where this incident occurred, saying he should resign. The Republican leadership in the Senate now stripping him of his seniority on these various committees. These are serious steps.

What do you think should happen to Larry Craig?

DODD: Well, I've never agreed with Larry Craig on much. I mean, we don't serve on any committees together. I don't know him terribly well. But I must say -- I think the Republican leadership obviously has to fulfill its own responsibilities, but I at least want to give him a chance to hear his side of the story here.

I don't know all the facts here. I've been reading a bit about it, not that much. I'd like to see all the information come out before deciding you're going to absolutely believe one side of this.

Again, I'm a Democrat. He's a very conservative Republican. We don't agree on much, but give him a little space here to defend himself is -- that's my reaction to it.

BLITZER: All right. Well, that's fair enough. And we'll see what happens.

Let's move on and talk a little bit about -- you saw that banner headline in "The Washington Post" this morning saying the president is going to seek another $50 billion supplemental military appropriations package to pay for the increased number of troops, another 30,000 troops that probably will stay now through the spring, at least.

This is going to be another tough vote for you in the Senate, assuming it comes up to $50 billion. Even if it's $40 or $30 billion, that's a lot more money than had originally been appropriated.

DODD: That's true. And on top of the $147 billion that's been asked for here. So, once again, we're talking numbers here. Roughly about $13, billion, $14 billion a month, $2 billion or $3 billion every single week.

I led the effort a few months ago to oppose the supplemental bill and I'll do it again here. This is a conflict for which there is no military solution.

BLITZER: What if there is a timeline attached to the additional funding that lays out a specific plan for withdrawal?

DODD: Well, I'll be glad to look at the timelines that are offered here, but my first reaction to this is, once again, this is a continuing operation here that is not succeeding. Our troops have done a magnificent job. They have not failed at all.

This policy has. And the quicker we come to that understanding, the better off we'll be. It's now up to the Iraqis to run their country here. Draining our treasury here of these resources I think is the wrong thing to be doing, and I'll oppose it.

BLITZER: The -- I want to play for you what Senator John Edwards said about this additional funding for the troops in Iraq, because he's been very, very critical of the current members of the Senate and the House, the Democrats, for allowing this to go forward. He's no longer in the Senate, as you know.

Listen to Senator Edwards.

(BEGIN VIDEO CLIP)

JOHN EDWARDS (D), PRESIDENTIAL CANDIDATE: What the Congress should do when they come back next week is make it absolutely clear, no timetable, no funding. And there should be no further excuses. The Congress needs to stand their ground.

(END VIDEO CLIP)

BLITZER: All right. Do you agree with him on that? Because what he's saying is, don't let any additional appropriation go forward. Filibuster if you have to prevent this money from going if there's no timeline for a troop withdrawal.

DODD: Well, as I say, I wish John were back in the Senate here to be of some help to us on these issues here. And it's sort of easy to sit out in the country here making these pronouncements.

I happen to agree that. I tried that back earlier this year. There were only 11 of us that opposed the supplemental bill here.

I really think it's time for us to realize this military solution is not going to work. We have a timetable that will allow for our troops to come back over the next seven or eight months, done so with safety and security. But the idea of continuing this operation at the magnitude they're talking about here, I think it's only creating a petri dish in Iraq for jihadists, for terrorists who are going to pose greater and greater risks for the neighborhood in the Middle East, as well as for ourselves.

I believe we ought to be terminating this funding.

BLITZER: But even some Democrats, including Hillary Clinton, the Democratic presidential front-runner, has acknowledged there is some progress being made, for example, in the Al Anbar province, which raises this question: Why not let General Petraeus get the job done, finish what he's trying to do, and give him that shot?

DODD: Well, again, look, there's certainly going to be some progress here when you have a massive amount of troops in one spot. But as one fellow told me at Walter Reed the other day who had lost his eye a few weeks ago in Iraq, he said, "Senator, we spend a month and a half clearing out a place. An hour and a half after we leave, it's right back where it was before. The civilian population knows where the ammo dumps are, the IEDs are, and they won't tell us."

So, Wolf, with all due respect here, I don't think we're securing long-term peace and security in Iraq with a continued military presence.

BLITZER: Let's talk about this endorsement that you got from the firefighters today. It's very important to you. It was very important to Senator Kerry.

Why do you think they decided to throw their hat in the ring with you, as opposed to some of the other Democratic presidential candidates?

DODD: Well, I think it's both past and future. I've worked with them. They're very interested.

These are great people. The firefighters are probably the most respected public servants in America.

They're trusted. They're people of deep values. They serve their communities well. And I'm deeply honored to be associated with them. And the fact that 280,000 members of this organization are supporting my candidacy, and because I've worked with them on issues they care about, that I've been a leader, successfully bringing people together within the Congress, Democrats and Republicans, on everything from family and medical leave and childcare, the Fire Act and the SAFER bills, all of those I think are value to them.

But also something else about them here. They didn't sit around and decide that whoever was winning today was going to be their choice. They said, it's not about who's winning today, but who ought to win. It's not about who is leading in the polls today, but who should be leading our country.

And so they're not motivated by polls. They weren't four years ago with John Kerry. He was at four percent in the polls.

BLITZER: What do you need to do now to break through to get to that top tier that so far hasn't happened, at least according to the polls or the fund-raising, two indicators?

DODD: Well, I don't think the polls reflect accurately. We've done over 70,000 calls in Iowa and New Hampshire. And the overwhelming majority are people who are truly undecided. In fact, more so each passing week as they've looked over the field and they're beginning to look at candidates that don't have the celebrity and the money that others have raised here.

But Iowa is not going to be told by national media what they're going to do in that cold night in January when they go into those caucuses, or in New Hampshire, for that matter. They want to hear what all of the candidates have to say.

And the fact that a major organization that played such a difference and such a role, that put boots on the ground, bring great assets to this effort, the people who are committed and know how caucuses and primaries work, I think they're giving us a great lift. And to be associated with firefighters, given their reputation and the respect they have, is a great asset for the campaign.

We've got four and a half months to go. John Kerry was at four percent in the polls in December of 2003, two points behind Al Sharpton and 22 points behind Howard Dean. And he ended up becoming the nominee of the party.

When are the national media going to start recognizing that winning the poll in August does not guarantee what's going to happen in January or February?

BLITZER: Fair enough point.

Congratulations on the endorsement. Thanks for coming in.

DODD: Thank you, Wolf. Nice to see you.

BLITZER: And still ahead, instead of flying higher, NASA digs deeper. Is there any truth behind allegations that some astronauts flew drunk? We're going to tell you what a brand new report has to say.

And later, why relatives of some fallen New York firefighters want Rudy Giuliani to stay away from this year's 9/11 memorial ceremony.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

(NEWSBREAK)

BLITZER: Two years after Hurricane Katrina, the mayor of New Orleans has had some very harsh things to say about President Bush and the pace of recovery. Is Mr. Bush getting an earful in New Orleans today?

And is Rudy Giuliani playing politics with 9/11? New questions today about the New York mayor's -- former New York mayor's trump card, as they say, in the presidential race.

Stick around. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Happening now: the Iraqi Shiite cleric, the anti- American Muqtada al-Sadr saying he's suspending his military activities, the military activities of his militia. Should we believe him, though? We will talk to a top U.S. military commander on the ground in Iraq.

Comedian Jim Carrey is speaking out on a very serious subject. He's trying to win the release of a Nobel Prize-winning dissident in Burma. We have some details coming in.

And the Larry Craig scandal has some people wondering, how common is sex in public men's rooms? You are going to be shocked by the answer. That report is coming up.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

But, first, New Orleans. It's marking the second anniversary of Hurricane Katrina's devastating landfall along the Gulf Coast. The occasion prompted President Bush to embrace the city's mayor, Ray Nagin, despite the mayor's recent sharp criticism of the pace of federal aid.

(BEGIN VIDEO CLIP)

RAY NAGIN (D), MAYOR OF NEW ORLEANS: We're tied up in between whether this is going to be a red state or a blue state. And we have a Democratic governor and a Republican president, and there's all sorts of tension there. And it's slowed things down tremendously.

(END VIDEO CLIP)

BLITZER: Susan Roesgen is joining us now in New Orleans.

That was an interview that the mayor gave you, Susan. We had that clip a couple days ago. The mayor met with the president today. What are we hearing? Did he pass along directly to -- to the president his concern that New Orleans wasn't getting the federal assistance it should be getting because Democrats are in charge there, as opposed to, let's say, Republicans in Mississippi?

SUSAN ROESGEN, CNN GULF COAST CORRESPONDENT: Well, apparently, Wolf,, according to a senior administration official, Mayor Nagin did today mention the issue of federal funding for Mississippi without those political implications, without those hot-button words of red state vs. blue state, Republicans vs. Democrats.

Apparently, the mayor did say something about Mississippi funding. And we don't know what the president said in return, but this senior administration official told us -- and I'm quoting here -- "Louisiana got way more money and hasn't spent it."

So, Wolf, there may have been some behind-the-scenes jabs here today on the second anniversary of Katrina, but, publicly, at least, both Mayor Nagin and President Bush seemed to be looking ahead.

(BEGIN VIDEO CLIP)

NAGIN: You can beat us up for this is that. You can talk about we should be much further than we are. But the bottom line is, this city was totally devastated and many people lost their lives. And the measure of a city or any city is about its people. And our people are coming back, ladies and gentlemen. We're 300,000 strong and growing every day.

(APPLAUSE)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: A lot of people down here probably wondered whether or not those of us in the federal government not from Louisiana would pay attention to Louisiana or Mississippi. In other words, it's one thing to come and give a speech in Jackson Square; it's another thing to keep paying attention to whether or not progress is being made.

And I hope people understand we do. We're still paying attention. We understand.

(END VIDEO CLIP)

ROESGEN: Well, one more thing on the federal government's responsibility, Wolf, after Hurricane Katrina, today is not only the anniversary, the second anniversary, of the hurricane, but it is also the deadline.

Today is the last day that homeowners here can file suit against the federal government. So far, 326,000 homeowners right here in New Orleans have filed claims against the U.S. Army Corps of Engineers for the levee breaches that destroyed their homes. So, we're talking about a lot more federal money -- Wolf.

BLITZER: We are going to have a lot more on the second anniversary of Katrina. Susan, thanks very much -- Susan Roesgen on the scene for us in New Orleans.

Republican presidential hopeful Rudy Giuliani is pushing his anti-terror credentials on the campaign trail. Those are credentials he earned as mayor of New York during and after the 9/11 attacks. But, on the same day, a big firefighters union endorsed a Democratic presidential candidate, Senator Chris Dodd. You saw him here in THE SITUATION ROOM.

Some New York firefighters are objecting to plans for Giuliani to even speak at the annual 9/11 memorial service. Some critics now say he's trying to turn tragedy into a photo-op.

Deb Feyerick is in New York watching this story for us.

Giuliani is facing some new questions from his critics there in New York. Update our viewers, Deb. What's going on?

DEBORAH FEYERICK, CNN CORRESPONDENT: Well, he is, Wolf.

On one side of the equation, you have those who say Rudy Giuliani has every right to be at ground zero for the anniversary, but there are a lot of firefighters and a lot of family members who are very angry at Rudy, thinking that, in fact, what he's done is turning 9/11 into really just a campaign opportunity.

(BEGIN VIDEOTAPE)

JIMMY RICHES, LOST SON ON SEPTEMBER 11: This is how I feel as a father, but the majority of firefighters do not want Rudy Giuliani there that day. I mean, he turned his back on us and all the first- responders. And now we're supposed to embrace him.

FEYERICK: Deputy Fire Chief Jimmy Riches lost his son on 9/11, one of 343 firefighters who died that day. Riches stood by Mayor Giuliani at the time. Not anymore.

(on camera): Do you think it dishonors your son's memory to have him standing there?

RICHES: I think it does dishonor my son's memory, because he sent my son into the building with a radio that didn't work that day. They had failed -- they didn't -- fail to prepare. He failed to prepare us before 9/11, during 9/11. And, after 9/11, he didn't protect the first-responders.

FEYERICK (voice-over): Giuliani, who attended dozens of firefighter funerals after 9/11, has taken part in the last five memorial services.

MICHAEL BLOOMBERG (R), MAYOR OF NEW YORK: I think it's appropriate to have Pataki and Giuliani there. After all, they were all at the time, and they have done it every year.

FEYERICK: Supporters say it's completely appropriate for Giuliani to be at ground zero, since, as mayor, he led New York City during the crisis. But critics believe, now that he's running for president, he's using the tragedy as a political photo-op.

RICHES: He can go down and pay his respects. It shouldn't be in a speaking capacity.

FEYERICK: A Giuliani campaign adviser say this is not about politics, telling CNN -- quote -- "If you know Rudy Giuliani, he would be down there paying his respects, whether he was invited or not. To say he's politicizing it, he never would do anything like that."

(END VIDEOTAPE)

FEYERICK: Now, one president candidate who will be on site at ground zero for those anniversary ceremonies, that is Democratic candidate Hillary Clinton for her support of first-responders -- Wolf.

BLITZER: Deborah Feyerick in New York for us, watching this story -- thanks, Deb.

Make your own presidential campaign ads have already made headlines this election cycle with the "1984" YouTube ad targeting Hillary Clinton. Now Mitt Romney is trying to harness the creativity of Web users with a challenge.

Let's go to our Internet reporter, Abbi Tatton. What is he urging -- Romney, what is he urging his supporters to do?

ABBI TATTON, CNN INTERNET REPORTER: Wolf, Romney is asking people, you make my next campaign ad, and we will put the best one on TV.

The Romney campaign teaming up with this editing Web site to offer dozens of video and audio clips that people can play with, as we did here. Or you can add your own material entirety. An online vote will decide which entry becomes the official Romney TV spot.

Now, there are potential risks here, inviting people to create the message or say what they want about a presidential candidate. The Romney campaign accepts that parodies might get out there, but says that they're not going to let that possibility "distract us from empowering our supporters."

We have seen other presidential candidates inviting Web users in, inviting them to participate. Hillary Clinton, earlier on this year, asking people to pick her campaign song on YouTube.

But this ad idea from the Romney campaign is a first for a presidential campaign. And Romney certainly engaging a Web audience this instance, though he certainly got some criticism online lately for being the one major Republican candidate that hasn't signed up yet for the CNN/YouTube debate in November -- Wolf.

BLITZER: Thank you, Abbi, for that.

Fund-raising certainly one of Hillary Clinton's strong suits. But is her money trail leading authorities to a wanted man? That story, the controversy, coming up. Candy Crowley standing by.

And the first calls for Senator Larry Craig to resign, as the scandal surrounding his arrest in a men's bathroom intensifies. Is this a political fight Craig can't win? Democratic strategist Paul Begala and Republican strategist Cheri Jacobus are standing by for our "Strategy Session."

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Questions are now being raised about one of Senator Hillary Clinton's top fund-raisers. This week, "The Wall Street Journal" has been profiling a little-known California businessman named Norman Hsu.

Records show he's funneled more than $1 million to the Clinton campaign by bundling together donations from his associates. Today's "Los Angeles Times" reports Hsu is a fugitive from justice, wanted for skipping out on a deal to serve three years in prison on grand theft charges.

Let's bring in our senior political correspondent, Candy Crowley. She's watching the story for us.

How big of a problem is this for the Clinton campaign?

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Well, at the moment, but much. I mean, if there's more that comes out, in terms of were these contributions legal, that kind of thing.

But you know how many contributors there are out there. I doubt, when you have a bundler -- this was a man of some reputation in the business world. They had no idea that he had this criminal record.

We should say that we have tried to get ahold of the Clinton campaign today, but they haven't returned our calls. Nonetheless, we should also point out that Mr. Hsu has also given to Barack Obama, the Illinois campaign, also to Barack Obama's PAC.

So, this was a man that contributed a lot. Tom Vilsack, another person he gave to. So, there are a number of people that took money from this man, but nothing at this point is -- has been shown to be illegal on the part of the Clinton campaign or any other campaign.

BLITZER: Apparently, he's giving a lot of money to a lot of Democratic politicians out there, which raises the question of the responsibility of these various campaigns to -- to vet, if you will, to check out these people who are giving them a lot of money.

CROWLEY: You know, every campaign cycle, as you know, we have, almost from every campaign, some sort of contributor that turns out to have a record, to have some sort of smarmy past, and they give them back.

Sometimes, they're illegal contributions. So, you know, the problem is, you go to those FEC reports, and there's just donor after donor after donor for these people. And it's very hard for a campaign to keep up with these.

Now, you can say, yes, you ought to run, you know, a background check on all of them. Would a background check have turned up this Mr. Hsu's record? Look, for the past several years, the federal government hasn't been able to find him. So, I'm not sure this is something you can lay onto the Clinton campaign.

BLITZER: Apparently, it's been 13 years or so since he pleaded no contest to these charges.

Thanks very much, Candy, for that.

Up next in our "Strategy Session": John Edwards comes out hard against the idea of spending more money in Iraq.

(BEGIN VIDEO CLIP)

JOHN EDWARDS (D), PRESIDENTIAL CANDIDATE: Now, I think the American people have had enough excuses. They don't want excuses anymore. They want to see this war come to an end.

(END VIDEO CLIP)

BLITZER: But, if the fight to secure Iraq is working, as some insist it is, is it a bad idea to oppose more money?

And Senator Craig, two of his Republican Senate colleagues now saying it's time for him to go. Will he listen? Paul Begala and Cheri Jacobus, they're here in THE SITUATION ROOM for our "Strategy Session" -- next.

The Democrats are holding their fire pretty much right now. Smart strategy?

PAUL BEGALA, CNN POLITICAL ANALYST: I think so. I think Democrats, at least, are being consistent. I think that should have more respect for an election, right?

The people of Idaho are smart. Two-thirds of them voted for Larry Craig to be their senator. I don't agree with that choice, but they're a sovereign state. In fact, in 2002, Senator Craig beat a very high-quality Democratic candidate, Alan Blinken, an investment banker and a diplomat, beat him 65-35, crushed him.

So, I think Democrats are right, or Republicans, to just say, let's respect that. In 15 months, there will be another election. Senator Craig can run or not run. I don't understand this rush to run him out of office, when no Republican that I know of has called for David Vitter, the embattled Louisiana senator who is accused of using prostitutes -- they're not calling for him to resign.

BLITZER: Well, he wasn't convicted of a crime.

BEGALA: Well, but this is a misdemeanor. Is that the difference? I think the difference is...

(CROSSTALK)

BLITZER: He pleaded guilty.

BEGALA: Hey, I think -- well, but Vitter admitted that he called the D.C. madam. So, he wasn't prosecuted, probably sensibly.

(CROSSTALK)

BEGALA: I think the difference is, Idaho has a Republican governor. If Craig resigns, the governor will appoint a Republican, presumably. Louisiana has a Democratic governor. And, so if Vitter were to resign, the Republicans would lose that seat. That's not principle. That's politics.

BLITZER: What do you think, Cheri?

CHERI JACOBUS, REPUBLICAN STRATEGIST: I think that's very cynical, but I'm not -- I'm not surprised that that would be the response.

The fact is, the real problem for -- for Senator Larry Craig is that he pled guilty. And perhaps he shouldn't have, but he thought perhaps that was the best thing to do. And that's the problem that Republicans have right now. And I think they look at it as a bit of a distraction.

I don't think there's a rush to ask him to resign. I don't know if three members of Congress is a rush, but it's something, I think, that a lot of leading Republicans are starting to make clear they don't want to have to talk about it. They don't want the party defined by this. And, so, you know, it's something for...

(CROSSTALK)

BLITZER: But, you know, the Republican leadership, Mitch McConnell and company, they stripped him of his seniority...

JACOBUS: Yes, exactly.

BLITZER: ... on the various Senate committees on which he serves, which is a very serious step.

JACOBUS: And there's going -- there's going to be a Senate ethics investigation on this. So, I don't think it looks good for Senator Craig, but, you know, Republican are very different than Democrats on this.

They might -- they might forgive somebody personally. They might have compassion. But, in terms of leadership, I just think there are a number of Republicans that might think that, because he pled guilty, this is a legal problem. It's not a moral judgment. And, if it's a legal problem, they do not want the distraction right now, particularly if you're running for president.

BEGALA: But George W. Bush, years ago, pled guilty to drunk driving, much more serious. We have a lot more people get killed by drunk driving than potty sex. Dick Cheney pleaded guilty to drunk driving many, many years ago. Republicans don't say, because they have a criminal record -- those are two convicted criminals, these men, of...

(CROSSTALK)

JACOBUS: Paul, this isn't a judgment. This isn't a moral judgment call.

(CROSSTALK)

BEGALA: Why are you guys throwing Craig overboard...

(CROSSTALK)

BEGALA: ... and not, say, David Vitter?

JACOBUS: It's nobody's...

(CROSSTALK)

JACOBUS: I don't think anybody is -- is throwing him overboard. I think they're looking at where they are now, what they want to be dealing with. Do they want to fight this? He pled guilty.

BEGALA: So did Bush.

JACOBUS: It's not a moral judgment. It's just something -- if it's a distraction for the party, there are a number of Republicans that -- that don't think that we need to do that now, and they want to put the party first. BLITZER: Here's a comment that Scott Reed, a Republican strategist, Bob Dole's campaign manager back in -- in '96, you remember, when Bob Dole was running for president.

"You can't make this stuff up," Scott Reed says, "and the impact this is having on the grassroots around the country is devastating. Republicans think the governing class in Washington are a bunch of buffoons who have total disregard for the principles of the party, the law of the land, and the future of the country."

That was in "The New York Times," Cheri, earlier today.

JACOBUS: Well, that -- that's pretty harsh. And I'm sure there are some Republicans out there that -- that might feel that way, not all.

But -- but, overall, I -- I predict that -- that what -- what Republicans will agree on is, they don't want this to be a distraction. And, if that means that -- that Senator Craig has to step aside from his committee assignments, fine. If it means he has to resign his post altogether, then -- then that will be another thing.

But I think it is -- it is about what's best for the party and not such a harsh personal judgment on him. Nobody is throwing him overboard. And, again, I do think that Republicans overall handle these things differently than Democrats.

BLITZER: All right, let's switch gears. We woke up, in "The Washington Post" -- with "The Washington Post" here in Washington this morning with a headline, "$50 Billion Additional Appropriations Funding for the War in Iraq Sought by the President" -- officials saying it might not be $50 billion. He's going to come up with some more money. He's going to wait until after General Petraeus comes up with his own report right now.

The Democrats once again, though, are going to have a difficult time dealing with this: Do you fund the troops? Do you abandon the troops, the 30,000 extra troops who went in during the so-called surge?

BEGALA: They will. But I think, this time, they have a piece of ammunition they didn't have the last time. And that's SCHIP.

SCHIP is not a weapons system. You know this. But our audience should know, SCHIP is the State Children's Health Insurance Program. Democrats want to increase that to cover a whole lot more poor kids and middle-class kids, even. The president opposes that.

So, he will be in the position, the president will -- and, if the Democrats are smart, they will do this. They will say, Mr. President, you want $50 billion more for a failed strategy in Iraq to prop up a corrupt government there, but you don't want a few more dollars for kids' health care here at home.

That are going to hurt President Bush politically. BLITZER: What do you think?

JACOBUS: I don't think that the American people will make that connection at all. And I think the Democrats are playing a risky game if they try and hold the supplemental bill hostage to that and try to play politics with either the war or with children's health.

The fact of the matter is, it looks -- there's -- there's evidence that the surge is starting to work. You have your -- Hillary Clinton and Barack Obama parsing their words a little bit, but trying to keep that door open, so that they can be on the winning side, because, ultimately, if this looks like -- if it looks like this war is going well, the Democrats do not want it to be George Bush's war. They want to be a part of success.

So, while I think that they -- they, you know, you might hear some people making a little bit noise about it. But the supplemental will go through. The Petraeus report is going to sound good. Everybody is going to see the hearings on television, and it's going to be hard for the Democrats to be too negative. They have got to be on the winning side.

BLITZER: We will be watching together with both of you.

Paul and Cheri, thanks for coming in.

JACOBUS: Thank you.

BEGALA: Thanks, Wolf.

BLITZER: And how does New Orleans represent the nation's problems? That's Jack Cafferty's question this hour. He's standing by with your e-mail.

Also coming up, "Children of the Storm" director Spike Lee and our own Soledad O'Brien, they're teaming up to give us a remarkable look at how young people see the Gulf Coast two years after Katrina.

And a top Shiite cleric in Iraq telling his forces to put down their weapons. I will ask the top U.S. military spokesman in Iraq what this may or may not mean for the U.S. mission.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Let's go back to Jack Cafferty in New York for "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: On the second anniversary of Katrina, Wolf, the question is: How does New Orleans represent many of this country's problems?

Keith writes from Virginia: "New Orleans represents the worst America has to offer. They have a large population of people who expect others to take care of them. They have a large number of criminals preying on each other. We have many problems in America, but most are a result of the people expecting the federal government to do the impossible. I have a novel idea: Limit the federal government to the powers that our founders gave them in our Constitution."

Chris in Missouri writes: "New Orleans is an illustration of how local governments are no longer being held accountable for their lack of leadership. Even local governments now look to the federal government to bail them out of any bad situation that arises."

K.P. in San Francisco: "We build things like roads, bridges, levees, and buildings, and then ignore them until they fall apart. Bush has handled the aftermath of Katrina in a deplorable way. But past administrations ignored the problems that caused this and other failures to happen, so they are as much to blame. State and local governments are just as bad. It won't be long before it all falls apart, because no one wants to pay taxes to maintain it."

Barbara in California: "The whole country needs to worry about becoming womb-to-tomb victims who are unable to cope, and totally dependent on government handouts, socialism, other people's values, and a basic loss gumption, common sense, and resolve."

And J.D. in Virginia: "It is the perfect metaphor for all that is wrong with this country. Our homeland is crumbling while we pour trillions into a fruitless effort to protect it. Our poor become more desperate while we pass tax laws benefiting the rich. And our ill grow weak while our leaders pander to the insurance industry. New Orleans is America's greatest shame" -- Wolf.

BLITZER: Jack, thank you for that.

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